Rent the Runway (RENT) is down more than 33% at the moment.
All after the company posted an unexpected decline in subscribers, and announced it would lay off staff in a restructuring plan. By cutting about a quarter of its non-hourly employees, the company says it could save about $25 million to $27 million in annual savings. Active subscribers fell to 124,131 in the second quarter from 135,000 in the first quarter.
Also, “Rent the Runway said it expects third-quarter revenue of $72 million to $74 million, below analysts’ estimates of $79.5 million, and an adjusted Ebitda margin of 1% to 3%. That would beat analysts’ consensus estimate of a negative 5.7% margin,” as noted by Bloomberg.
But don’t write the stock off just yet. Analysts are still bullish.
Wells Fargo for example, cut its price target to $8 from $12, but reiterated an overweight rating on the stock. The firm also found positives in the report to keep price targets high.
As noted by MarketWatch.com, “[Wells Fargo analyst Ike] Boruchow said the subscriber number was ‘bad,’ but noted that there was some improvement later in the quarter. And for the restructuring that leads to the loss of nearly one-quarter of its employees, Boruchow called that a ‘positive,’ as it improves the longer-term profitability outlook”
Raymond James also cut its price target from $9 to $8, and reiterated an outperform rating. The firm believes most of the negativity has been priced into the stock already. Even Jefferies analysts cut their price target on RENT to $10 from $13, but kept a buy rating. The firm also believes the stock’s reaction to results are overdone.
Shares of RENT are down 33% to $3.28 at the moment.
We wouldn’t race to buy RENT just yet. Wait for it to bottom out –perhaps around support dating back to June and early July first. Buying a falling knife is never a good idea.